Stockholders’ equity

Open Market Sales Agreement

In December 2018, the Company entered into an Open Market Sale Agreement with Jefferies LLC (“Jefferies”) (the “Sale Agreement”), under which it could issue and sell common shares, from time to time, for an aggregate sales price of up to $50.0 million. For the three months ended March 31, 2019, the Company issued 614,401 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $2.7 million.

In December 2019, the Company entered into an amendment to the Sale Agreement with Jefferies (the “Amended Sale Agreement”) in connection with the filing of a new shelf registration statement on Form S-3 (File No. 333-235674), filed with the SEC on December 23, 2019 (the “New Shelf Registration Statement”). The amendment revised the original Sale Agreement to reflect that the Company may sell its common shares, without par value, from time to time, for an aggregate sales price of up to $50.0 million, under the New Shelf Registration Statement. During the three months ended March 31, 2020, the Company issued 4,147,081 common shares pursuant to the Sale Agreement and the Amended Sale Agreement, resulting in net proceeds of approximately $12.3 million. As of March 31, 2020, the Company had approximately $42.7 million remaining available under the Amended Sale Agreement.

Stock-based compensation

The table below summarizes information about the Company’s stock based compensation for the three months ended March 31, 2020 and 2019 and the expense recognized in the condensed consolidated statements of operations:



	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
	(in thousands, except share and per share data)
Options granted during period	2,097,237		1,604,500
Weighted average exercise price	$	3.35	$	4.57

Research and development	$	853	$	727
General and administrative	592		795
Total stock compensation expense	$	1,445	$	1,522

Series A Preferred Shares

In October 2017, the Company entered into a subscription agreement with Roivant for the sale of 1,164,000 Preferred Shares for gross proceeds of $116.4 million. These Preferred Shares are non-voting and accrue an 8.75% per annum coupon in the form of additional Preferred Shares, compounded annually, until October 16, 2021, at which time all the Preferred Shares will be subject to mandatory conversion into common shares (subject to limited exceptions in the event of certain fundamental corporate transactions relating to Arbutus’s capital structure or assets, which would permit earlier conversion at Roivant’s option). The conversion price is $7.13 per share, which will result in the Preferred Shares being converted into approximately 23 million common shares. After conversion of the Preferred Shares into common shares, based on the number of common shares outstanding as of March 31, 2020, Roivant would hold approximately 42% of the Company’s common shares. Roivant agreed to a four year lock-up period for this investment and its existing holdings in the Company. Roivant also agreed to a four year standstill whereby Roivant will not acquire greater than 49.99% of the Company’s common shares or securities convertible into common shares. The initial investment of $50.0 million closed in October 2017, and the remaining amount of $66.4 million closed in January 2018 following regulatory and shareholder approvals.

The Company records the Preferred Shares wholly as equity under ASC 480, Distinguishing Liabilities From Equity, with no bifurcation of conversion feature from the host contract, given that the Preferred Shares cannot be cash settled and the redemption features are within the Company’s control, which include a fixed conversion ratio with predetermined timing and proceeds. The Company accrues for the 8.75% per annum compounding coupon at each reporting period end date as an increase to preferred share capital, and an increase to deficit (see Condensed Consolidated Statement of Stockholders’ Equity).